Episode 188: From building new homes to multi-family!
In today’s show, Pancham interviews Ryan Webster – NHBA award-winning home builder, experienced real estate professional, entrepreneur, and managing partner and founder of Equity Yield LLC.
Realizing his aspirations of earning passive income and spending more time with his family, he transitioned from new constructions and single-family homes to multi-family investments. Today, he is making progress toward his goals by continuing to invest and help others in achieving capital gains and having financial freedom!
Learn more about investing in multi-family assets in this episode as he discusses his shift to acquiring multi-family assets, the hurdles that come with it, and getting to win deals! He’ll also discuss how he manages his assets and how he maintains his competitive edge in the industry.
Listen and enjoy the show!
Tune in to this show and enjoy!
- 0:38 – Pancham introduces Ryan to the show
- 1:18 – On assessing his life goals and shifting to multifamily assets
- 6:03 – Barriers to acquiring investments when you’re a new investor
- 11:31 – Raising capital, building relationships, and securing debt
- 14:06 – Asset management and tracking controllable expenses
- 15:46 – On continuing to buy assets amidst today’s current market
- 22:44 – Taking the Leap Round
- 22:44 – Fix-and-flip as his 1st investment outside of Wall Street
- 24:18 – Overcoming his worries by taking the leap and invest
- 24:45 – His investments that didn’t work out as expected
- 25:29 – Why you should simply invest and get into real estate
- 26:18 – How you can connect with Ryan
3 Key Points:
- Identify your long-term goals so that it could help you decide on what investing strategy best fits you.
- Aside from knowing your life goals, you should also assess the risks that come with them so you can be prepared for what’s about to possibly come.
- Take the leap and start building broker relationships, and let yourself known to other investors in order to have a presence in the industry.
Get in Touch:
Welcome to The Gold Collar Investor Podcast with your host Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the Wall Street investments and create multiple income streams. Here is your host Pancham Gupta.
Hi this is Tom Burns, author of why doctors do not get rich you are listening to the gold collar investor podcast with Pancham Gupta.
Pancham Gupta Welcome to the gold collar investor podcast. This is your host Pancham really appreciate you for tuning in today. My guest is Ryan Webster Ryan is an award-winning homebuilder experienced real estate professional and an entrepreneur over a decade of experience owning and operating Midwest based construction and development company wide range of project experience managing new construction and value add multifamily projects. Hey Ryan, welcome to the show.
Ryan Webster Hi, thanks for having me.
Pancham Gupta Well, I was pleasure to relate to you. Before we get started. Are you ready to fire up my listeners break out of Wall Street investments?
Ryan Webster Absolutely. Let us do it.
Pancham Gupta So, you know, before we get started, Ryan, tell our listeners about your background, and more importantly, the person behind that background.
Ryan Webster Yes, certainly. So, I am a real estate professional and an entrepreneur currently working in investing in large multifamily properties, founder of Equity Yield group. And that is really, really our focus is acquiring institutional quality multifamily assets across strong growth markets in the southeast. Prior to this, I own and operate a construction and development company for about a decade, did a lot of new builds single family homes, smaller commercial stuff, and then transitioned business models a couple years ago from the build and sell to the buy and hold model in which you get the opportunity for cash flow, a little better tax benefits. So, like a little better.
Pancham Gupta Got it. So how did you get into the construction business? Are you doing that now? That is completely at this point, like if we went out of it.
Ryan Webster Yep, nope, completely out of out of that company and into the new company here. Started very young. My grandparents owned a construction company. You know, one of my first jobs was in carpentry when I was a teenager and enjoyed it and then got a little older and said, well, I want to try this out for a career. And you know, look back many years later, I am like, well, I will keep going.
Pancham Gupta Right out of college, you went into the family business.
Ryan Webster No started my own business. They were working towards retirement. So, I ended up buying, buying off some of their assets, starting my own company and going out on my own.
Pancham Gupta Oh, wow. Okay, so what really, you know, made you I know, you mentioned this briefly. Think about like that was going on, and we know single family home market has been on up enough for last 10 years. Right. What made you think about moving into multifamily?
Ryan Webster Yes, really, for me, it was a transition of lifestyle and life goals as I got older and had children. You know, when I was younger, I was focused on building, growing the company, and scaling and that is fine when you are young and single when you start having a family it is large time and investment to grow and run a business like that. So started assessing what my longer-term goals was. And one of those was to take step back and have more time to spend with the family. So started looking at investing in real estate versus just working in real estate seemed like the next logical step is how do I get this asset I’m very familiar with how do I get it to kick off some cash flow and work for me when I’m not working and then quickly realized that you know, I live in a low density smaller market so investing in real estate where I live wasn’t going to work real well and get me my time back. So got into you know, researching markets what made a good market to invest in where you invest in real estate and how do you get scale and landed on you know, multifamily made a lot of sense. Pretty low risk asset always going to be demand for housing obviously, if I’m going to stretch into a market where I don’t live you know, that part made sense to me being in multifamily.
Pancham Gupta Got it. So, do you just directly pick that like I am trying to figure out like did you research many different avenues before you pick multifamily or were just very simple and clear to you? Oh, do you know what, single family homes I do this and let me just try multifamily because it is a natural progression.
Ryan Webster Yes, for me was about assessing the risk again, I realized early on, I was gonna must get out of the market I live lived in and to get into an asset that, you know, was far away from where I live and manage from afar. You know, I had some experience in commercial properties and retail properties and building and leasing those up. And that was not a risk exposure that I wanted to try to manage from far away. And that is where it really settled into multifamily is, you know, the demand for housing in the stronger markets really helped me wrap my mind around, okay, is this something that I can manage from afar? That is going to be lower risk, I am not gonna must worry about, you know, occupancy.
Pancham Gupta Got it. So, you mentioned couple of times far away, like, where do you live for the audience are wondering after?
Ryan Webster Yes, so I live here in the Midwest, and Cedar Rapids, Iowa, and most of the portfolio that we own is down in Florida around the Tampa area. So quite some distance away.
Pancham Gupta Yes. Yes. Tampa has been exploding specially after pandemic, right. So. So let us talk about that. That is a good segue. So, you pick you decided, let us go into multifamily. We will pick the markets, which are, you know, good markets, high growth markets, and Tampa happens to be one of them. So, what happened next? Like, did you just go out and start talking to brokers or, like, if someone wants to be, you know…
Ryan Webster That was the first step? Yes. I mean, there was a transition period. So, it was the hardest was, you know, building a new business, running the existing business, and taking the steps in between transitioning full time into the new business out of the old business. That was, that was challenging and time commitment. But yes, acquiring multifamily assets, once you have the investment strategy that you like, and you like the market, it is about reaching out to the brokers, and especially the product type that we like to acquire. It is all marketed deals, that there is not an opportunity for off market deals. So, it is really about broker relationships, getting out there, letting them know who you are, what you are doing, and bidding on a lot of deals, one just to stay top of mine with a broker’s and have a presence in the industry. And then, you know, getting to winning a deal, which is a big hurdle to overcome, especially when you are a new company, you know, nobody is ever heard of you, and you are trying to, you know, purchase 30, 50 $70 million properties.
Pancham Gupta Yes, yes. Let us talk about that. Right. The first one that you did, was it in Tampa area?
Ryan Webster Yeah, Sarasota. So, about an hour away from Tampa, great little market. And we would love that asset. Nailed the timing on it. We got an incredible basis that you just cannot find today. But yes, that was 148-unit, multifamily community, built in 2016. So, it was a nice class, a community it was, well, amenitized, the exteriors looked great, no deferred maintenance. But the interiors, you know, left a lot to be desired. They got cheap on the finishes. Very, very ugly kitchens. And because of that, you know, rents were really dragging and competitors in the market. And we found this property like hey, you know, we can fix that we can make these interiors not look so ugly. And outside of that the property is a great property. So, we came in renovated interiors about $70 – $100 per unit. We have seen lease trade outs on renovated units, you know, $550 per unit.
Pancham Gupta Wow. And for the audience, like how much was the rent before the increase of 550?
Ryan Webster Yes, so rents when we took over the property, we are sitting in aggregate kind of around $1,100.
Pancham Gupta On average, yep. Okay, and you took them to like, goal was to get them to 1650. On average,
Ryan Webster The goal was much lower than that. So, when we set our pro forma, we were looking for $150 Rent bumps on unrenovated units. We felt that that was achievable. But again, about finding you know, the market where you have strong employment, you have a diverse employment market, and you have, you know, population growth, driving demand. And then you have this supply constraints, you know, we were able to well exceed that pro forma number, because demand for housing is so huge in that area.
Pancham Gupta Got it. So, for the audience, you bought it in 2019. Is it 2020 2020 Okay, and are you done with the business plan? Have you sold it? Are you planning to sell it? What is the story there now?
Ryan Webster We are gonna hang on to that one. We will hit a couple of refinances along the way. But again, we bought it at a basis well below replacement costs and some databases you do not see the market think we paid 175k a door for that. We are known we are seeing Class A properties they are trading 500k a door for 2021 Vintage now.
Pancham Gupta Wow. That is a huge spread.
Ryan Webster Yes, absolutely. So, we feel good about sitting in that one for a while.
Pancham Gupta Got Okay. All right. So, let us talk about like Asset Management site, right. Like before I go there, you know, given being a very new operator, like you said very hard to get anything under contract. So how did you find this property? Or how, what did you do to win this property?
Ryan Webster So, yes, a little bit of luck. And I think that’s true of, you know, most people in getting their first deal under contract and then the a lot of hard work, but it was, it was marketed, again to the deal profile, the deals to purchase or marketed but it was with a, you know, a boutique brokerage, a little less competition on the buyer side. But the real advantage we have is it was owned by our property management company. So, we had that relationship with the sellers. And, you know, we put up significant hard money, we were, you know, hitting pricing guidance, but I think the thing that really sold them on it as we were willing to retain the property management company.
Pancham Gupta So, you knew the sellers through the property management, and you said that you will retain your services once you buy it. And that was an edge that you had, which potentially not many other people did.
Ryan Webster Yep, absolutely. So, you know, the relationship with the owners and, you know, allowing them to continue operating the property and collecting property management fees help their decision. You know, it did present a little bit of a conflict-of-interest due diligence goes, but, you know, we hired an objective third party to assist with that.
Pancham Gupta Got it? What about now? So that was the finding the property what, but finding the capitals? How did you do that, given that this was your first deal? And, you know, 144 units as the forty-eight units? You said, right, big deal. Yep. Yep. Are you scared? Going in? Are you know, did you have your equity figured out? Like, what did you do?
Ryan Webster Yes, we had not had a good chunk of it figured out, you know, coming from, you know, the development construction side, a lot of development deals are highly levered, and they use a lot of capital in the middle of the capital stack from institutions are second lien lenders. So as far as building the cap will stack, that was a structure I was familiar with, you know, working with other institutions. So, we had an institutional partner that won Electra Capital. And they brought 65% of the equity to the deal. And it was pretty, favorable terms at the time. And then we raised 4.1 million of common equity behind that. But the important piece of that and Institutional Equity is you want to have a relationship with these guys, prior to having a deal, you don’t want to try to pound a square peg in a round hole and put the deal under contract and get a 60-90 day contract period and go try to find an institution and, and make friends with them and negotiate term sheets. It is just it is too much pressure on negotiations in that short time window to get a favorable deal. So, prior to winning that deal, we spent a lot of time and meeting with the capital markets guys competing with institutional equity providers and talking about the products they provide and the deal profile they like, and you know, indicative terms.
Pancham Gupta Got it. Okay. Cool. So that was discussed the deal, we discussed the, your equity side, what about the debt side? Did you have any issues with that? Did you have to bring on people who were experienced who are experienced in this business? Are we able to secure that without any of that? Yes,
Ryan Webster We brought in a balance sheet guarantor, for credit enhancement, we ended up doing a Freddie Mac, floating rate loan on that at the time. Back then we knew interest rates could not stay at the floor, you can ever really guess when they are gonna go up or down. But you know, we always know they are going to move. So, we bought very aggressive interest rate cap and 50 basis points. At the time, we paid like 170k for which today is worth about 780k. So, we are grateful that we bought that it is held better, our debt service expense constant.
Pancham Gupta Yes. That is great. So, let us talk about asset management now. Right. So now you bought the deal to fund the fund the capital fund the debt, and so you knew your business plan that you are gonna renovate? What kind of metrics do you track as part of asset management to kind of make sure that the ship is in the right direction? And if you are not getting off target?
Ryan Webster Yes, absolutely. For every component of the business plan is in there, but we have obviously, controllable expenses. So, you know, we watch closely and then you know, the ones we cannot control and insurance and taxes, we are conservative on taxes and quite a room on that. We just hit our insurance renewal and rates across Florida for insurance are going up significantly and we had a win at a 9% increase, which sounds like a lot but in Florida right now. That is a
Pancham Gupta Very good deal, man. That Good that you were able to just
Ryan Webster Keep it at nine. Yes. But the other thing has been interesting throughout the pandemic and coming out of it is the renovation side. And that’s one of the reasons we like this late model product, and we don’t do real heavy lifts is there’s some execution risks that comes with these real heavy renovations, in terms of getting supplies, getting pricing on supplies that you estimated you keeping your project schedule, so we like to keep it simple and easy to execute. But with that comes, you know, tracking what we projected for expenses, versus what was achieved, as well as you know, the velocity of renovation, and then the return on cost metric is important as well, what are you achieving in rent premiums versus what are you spending?
Pancham Gupta Yes, makes sense. Makes sense. So given your experience since then, you have done many other deals. Right. So, let us talk about today’s environment. And what is your take on, you know, we all know about inflation and rates going up and supply demand issues. So, there are a lot of different vectors which are happening. And then, you know, outside of the US we have a war going on, and a lot of geopolitical things versus and, you know, what is happening in the US? Are you still a buyer? Yes, what are you looking at? And how have you changed your thing or your process? If you have?
Ryan Webster Yes, absolutely. I think the biggest changes has been in the debt. You know, in the last 12 months, bridge debt and variable rate debt was a very popular product for almost everyone in the industry. And, you know, we utilize as well, but again, we bought aggressive interest rate caps. So, we are doing okay, but I know, you know, there is, there’s others that are having cash flow, constrained by rising interest rates on this variable rate debt product. So, we have shifted to trying to get to a fixed rate capital stack now, which comes because of low leverage bank loans or life co loans, most we underwrite. Today, we are sitting 50 55% leverage on the senior, and then going back to our institutional partners and trying to get to 70 75% leverage on their piece of it. But again, looking for a preferred equity piece, that is, that is a fixed rate of return. That way, we can accurately estimate the cash flows. And that is, you know, there is a lot of things going on in the market today. And the hardest part of our job’s investor is trying to accurately predict the future value of an asset, you know, as much research as we can do, at the end of the day, we are still making our best guess. So, our real focus is on the things that are a little easier to project in that that’s cash flow. Because the end of the day, it is real estate, but you are buying a business that happens to be located, you know, on some land with some buildings on it. So, if you really focus on the business that you are buying, and what is the cash flow of that business, if there’s cash flow, you know, there is a good chance you are gonna have appreciation in the future. That is our focus right now.
Pancham Gupta Got it. So. So, in other words, you are still buyers, all that you are changing is your debt side, and you are taking very low leverage senior debt, and then you’re putting 20 to 25 percent preferred or floating rate on top of that.
Ryan Webster Yes, and the other interesting thing we have seen recently is, you know, it is seen very aggressive cap rate compression in the last, you know, 1224 months. That is this new kind of market discovery that is going on, where you have the brokers selling these deals, and they are pushing for these prices that 60, 90, 120 days ago, were very achievable when you had, you know, very cheap debt, but now not so much. So, we are seeing, you know, before properties would trade well above guidance, you know, now guidance is moving down as you go through each round of bidding. So, it is going to be an exercise in where, where things are going to settle where the bottom is, and what is an acceptable level of cash flow for investors in this debt environment.
Pancham Gupta Yes, no, that is true. It is all about that writing numbers. And in the rising tide, you feel that, okay, let us buy now. Otherwise, it would be 10% more expensive. Yes. Down tide. You are always you can, who knows what is going to happen, right going up or going down? But if it is going down, or the expectation is that it is going to go down, then you will not feel oh, if you buy one month later, it may be 5% lower, you know?
Ryan Webster Yes, absolutely. And that’s the thing we’re all looking at and kind of scratching our heads especially when you’re trying to get back into you know, evaluation of exit of standard industry products process to use you know, a cap rate escalator and assume you’re going to sell in a weaker market, but how much weaker of a market that’s the more or objective piece, it’s a little harder to pin down. But again, you know, we are, we are looking at the business, we are looking at cash flows, and the name of the game is, you know, can you grow rents and revenue faster than then interest rates? On? That is the interesting part about this, yes, money got more expensive. But we still have low inventory, we still have supply chain issues are making it hard to replace inventory, we still have wage growth, we still have these massive migration trends. So, there is still a lot of demand pressure, that when you talk about rents plateauing or coming down, it is going to come down to supply and demand factors. And can the incomes and wages support the rent growth? So, if you’re looking closely at what are the wages of supplies in the markets you’re investing in, you can still see favorable rent
Pancham Gupta Growth. Cool. Well, thanks, Brian, anything else you would like to add before we move on to the second part of the show.
Ryan Webster No
Pancham Gupta Well, thank you. We will be back after this message. If you are an accredited investor and have been thinking about putting your money to work for you, then I have good news for you. I have created an investor Club, which I call the gold collar investor club, I will be putting together investing opportunities exclusively for the group. These are the opportunities where I have done the due diligence for you and will be investing my own money alongside you. If you are interested, please sign up on thegoldcollarinvestor.com/club. I repeat thegoldcollarinvestor.com/club. I will reach out to schedule a 30-minute phone conversation to discuss your investing goals. Once you sign up, this can be a good opportunity to diversify and take some chips off the hands of Wall Street to produce some passive income. And in case you were wondering, what is an accredited investor, accredited investor is someone who has earned more than $200,000 as filing single, or more than $300,000 Filing Jointly for last two years. Another way to qualify as an accredited investor is if your total net worth is more than $1 million, excluding your personal home. It includes your stocks, 401Ks, iras, cars, etc. Just not the equity in your personal home. If this, is you, I would highly encourage you to sign up? So, Ryan, let us move on to the second part of the show which I call taking the leap brown ask these four questions to every guest on the show. My first question for you is when was the first time you invested outside of Wall Street?
Ryan Webster Yes, the first one I did was a was a fix and flip. Having the construction background at the time that construction company I can buy some really trash properties for very cheap and you know, be able to cost effectively repair them. So yes, we bought this terrible house. Yeah, in Iowa, but it was dirt cheap. We did some renovations on it and ended up ended up selling it and it came out okay. But what I realized is, it is a lot of work. And then the flipping game is all capital gains. So, you give a lot of a lot of what you can make to the IRS. And that was the next step was okay, I do not like capital gains as much so how can I rent in my market when I started looking at rental rates in which to buy a house for and you know, Heck! You can get a cheap house and renovate it and then cash flow after that. And I realized there was not you know, demand for rentals, my market because we still had very affordable single-family homes, you still buy a house for 400k where it lives. Like it is you know, there is not a lot of people renting because they all can afford to buy right now.
Pancham Gupta In Iowa? Yes, so what year was that long time back?
Ryan Webster That would have been shortly after a crisis. So, I think 2010
Pancham Gupta Got it. Got it. Yes, that time was a great time to buy too, you know. So, my second question, did you have any fears that you had to overcome when you bought that property?
Ryan Webster Yeah, there’s always you know, with investment and you’re trying to peg the future value of anything, there’s always the fear of what if I’m wrong, but again, just got to put that put that aside and do as much research as you can but it really comes down to taking the leap and putting in the work to execute the plan.
Pancham Gupta Got it. Got it. So, my third question for you is can you share with us one investment that did not go as expected I
Ryan Webster Did some other houses after that and this was back when I was looking into okay, I do not want to pay capital gains. So, let us rent most generate cash flow. And that was one I concluded that the market I live in is not a market that is going to generate a lot of cash flow, or really a lot, a lot of appreciation. And that was when I made the decision that, you know, I really need to look, look away from home, I get into some stronger markets with some higher population density, but does not have so much cheap real estate. Because from a rental perspective, it is hard to compete with home ownership when it is cheaper to own and rent.
Pancham Gupta Got it. So, my final question for you is, what is one piece of advice would you give to someone who is thinking of investing in Main Street that is outside of Wall Street?
Ryan Webster Yes, absolutely. I think get into real estate is a great, great asset. You know, and anytime the strategy of real estate investment may change in different parts of the market cycle, but it’s a great, great asset to be in. That is the only asset I know that that has the tax benefits that it does, or you know, you get to get to keep most of your gains, which is great. And then that is one of the few assets that produces cash flow, as opposed to just hoping for appreciation or taking, you know, smaller, smaller dividend payment.
Pancham Gupta Great. Thanks, Ryan, for your time here. How can listeners connect with you if they want to reach out and find out more about your business and what you are up to and be part of your list?
Ryan Webster Yes, absolutely. You know, the best place to find us is on our website at Equityyieldgroup.com. If you want to learn more about you know, real estate, investing in general, specifically multifamily. There is a lot of information available on the website.
Pancham Gupta Great. Thanks, Ryan, for your time here.
Ryan Webster Yes, thank you very much. Appreciate you having me.
Pancham Gupta Thank you for tuning in today and listening to Ryan’s story of becoming a multifamily owner and operator and you know, phasing out from his new home building business that he had in the Midwest. I hope you got some value from it. And if you have any questions, do not hesitate to email them to me at email@example.com. That is P as in Paul at the gold collar investor.com Thanks and have a great day.
Thank you for listening to The Gold Collar Investor Podcast. If you love what you have heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com And follow us on Facebook at The Gold Collar Investor. The information on this podcast are opinions. As always, please consult your own financial team before investing